Dy. Commissioner of Income Tax , Circle-16(2), Hyderabad V. Mishra Dhatu Nigam Limited , Hyderabad

ITA 1468/Hyd/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7400 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 23-06-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 05-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARMADA SR DRI
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Earning of tax free income; Retrospective amendment; Capital expenditure; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 1468/HYD/2018 ASSESSMENT YEAR: 2014-15 DY.COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD VS M/S.MISHRA DHATU NIGAM LIMITED, HYDERABAD [PAN: AABCM6345A] (APPELLANT) (RESPONDENT) FOR REVENUE : SMT. M.NARMADA, SR.DR-I FOR ASSESSEE : SHRI B.SATYANARAYANA MURTHY, AR DATE OF HEARING : 23-06-2021 DATE OF PRONOUNCEMENT : 17-08-2021 O R D E R PER S.S.GODARA, J.M. : THIS REVENUES APPEAL FOR AY.2014-15 ARISES FROM THE CIT(A)-4, HYDERABADS ORDER DATED 25-04-2018 PASSED IN CASE NO.0323/2016-17/FCIT,CIR.16(2)/CIT(A)-4/HYD/18-19, IN PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961 [I N SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. COMING TO REVENUES FIRST AND FOREMOST SUBSTANTIVE GRIEVANCE FORMING SUBJECT MATTER OF ITS FORMER THREE SUBSTANTIVE GROUNDS THAT THE CIT(A) HAS ERRED IN LAW A ND ON FACTS IN DELETING SECTION 14A R.W. RULE 8D DISALLOWAN CE OF ITA NO. 1468/HYD/2018 :- 2 -: RS.7,49,544/-, WE FIND THAT THE ASSESSEE HAS NOT DERIVE D ANY EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR. 3. AT THE OUTSET, LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT SINCE THERE IS NO DIVIDEND INCOME EARNED IN THE RELEVANT PREVIOUS YEAR THE CIT(A)S ORDER DELETING THE IMPUGNED DISALLOWANCE MAY BE UPHELD. IN THIS CONNEC TION, HE RELIED ON THE FOLLOWING CASE LAW: I. CIT VS. CHETTINAD LOGISTICS PVT. LTD., [80 TAXMANN.COM 221] (MADRAS); II. CIT VS. CORRTECH ENERGY PVT. LTD., [223 TAXMAN 130] (GUJ); III. CHEMINVEST LTD., VS. CIT (2015) [378 ITR 33] (DEL) THEIR LORDSHIPS HOLD THAT SECTION 14A READ WITH RULE 8 D APPLIES ONLY IN RELATION TO AN ASSESSEES EXEMPT INCOM E AND NOT OTHERWISE. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS NOT DERIVED ANY EXEMPT INCOME IN THE RELEVANT PREVIOUS YEA R. WE THEREFORE SUSTAIN THE ORDER OF CIT(A) UNDER CHALLENGE . THE REVENUES INSTANT FORMER THREE SUBSTANTIVE GROUNDS FAIL THEREFORE. 4. NEXT COMES THE REVENUES LATTER SUBSTANTIVE GRIEVAN CE THAT THE ASSESSING OFFICER HAD RIGHTLY DISALLOWED THE A SSESSEES CORPORATE SOCIAL RESPONSIBILITY (CSR) EXPENDITURE TO THE TUNE OF RS.1,91,70,559/- IN LIGHT OF SECTION 37, EXPLANATIO N-II, THE CIT(A)S DETAILED DISCUSSION DELETING THE SAME READS AS UNDER: 5.THE GROUND NOS.2 IS WITH REGARD TO DISALLOWANCE OF AN AMOUNT OF RS.1,91,70,559/- BEING CORPORATE SOCIAL RESPONSIBIL ITY EXPENSES U/S.37. 5.1 WITH REGARD TO ABOVE GROUNDS, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED AS UNDE R: ITA NO. 1468/HYD/2018 :- 3 -: ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FILE D BY THE ASSESSEE COMPANY ALONG WITH THE RETURN OF INCOME, IT IS OBSE RVED THAT THE ASSESSEE COMPANY HAD CLAIMED 'CORPORATE SOCIAL RESPONSIBILIT Y(CSR) EXPENDITURE' TO THE TUNE OF RS.1,91,70,559/- UNDER THE HEAD 'OTH ER EXPENSES' BESIDES VARIOUS OTHER ITEMS OF EXPENDITURE. THE SAID EXPEND ITURE IS NOT ALLOWABLE AS PER THE PROVISIONS OF EXPLANATION -2 OF SEC.37 O F THE I.T.ACT. IT IS PERTINENT TO MENTION HERE THAT THE SAID PROVI SIONS ARE DECLARATORY IN NATURE. IN THIS REGARD, RELIANCE MAY BE MADE TO THE DECISION OF HON'BLE APEX COURT IN THE CASE OF MITHILESH KUMA RI & ANR. VS. PREM BEHARI KHARE(SC) 177 ITR 97, WHEREIN, IT IS HELD TH AT WHEN AN ACT IS DECLARATORY IN NATURE, THE PRESUMPTION AGAINST ITS RETROSPECTIVITY IS NOT APPLICABLE. FURTHER, RELIANCE MAY BE DRAWN IN THE C ASES OF LAXMI INDUSTRIES LTD. CO. & ORS VS. ITO 7 ANR. (RAJ) 231 ITR 514 WHEREIN IT IS HELD THAT AN EXPLANATION BROUGHT IN THE STATUTE BOOK IS ORDINARILY CLARIFICATORY IN NATURE AND HAS RETROSPECTIVE EFFECT AND (II) CIT VS . GLENMARK PHARMACEUTICALS LTD. (BAM) 324 ITR 199 WHEREIN IT I S HELD THAT AMENDMENT TO REMOVE AMBIGUITY HAS RETROSPECTIVE EFFECT. IN VIEW OF THE ABOVE, THE CSR EXPENDITURE OF RS. 1, 91,70,559/-CLAIMED BY THE ASSESSEE COMPANY IS NOT AN ALLOWABLE EXPENDI TURE FOR DEDUCTION AS PER THE PROVISIONS, OF EXPLANATION-2 OF SEC.37 OF T HE ACT. HENCE, THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 5.2 DURING THE COURSE OF APPEAL PROCEEDINGS, WITH R EGARD TO ABOVE GROUNDS, THE APPELLANT'S AR STATED THAT, THE APPELL ANT COMPANY INCURRED AN AMOUNT OF RS.1,91,70,559/- ON SCHEMES L IKE SKILL DEVELOPMENT AND EDUCATION OF ECONOMICALLY BACKWARD CHILDREN, RENOVATION OF SOME SCHOOLS, SUPPLY OF AIDES AND APP LIANCES TO PERSONS WITH DISABILITIES, WATER PURIFICATION PROGR AMMES FOR THE COLONIES AROUND THE FACTORY, SOCIAL RESPONSIBILITY AWARENESS PROGRAMMES, SUPPLY OF SUBSIDIZED FOOD TO CONTRACT. ALL THESE EXPENSES INCURRED IN THE COURSE OF CARRYING ON THE BUSINESS MAINLY WERE AS A MEASURE OF WELFARE OF THE EMPLOYEES OF TH E APPELLANT COMPANY. FOR THE SAKE OF CONVENIENCE, THIS EXPENDIT URE WAS GROUPED UNDER 'CORPORATE SOCIAL RESPONSIBILITY A/C'. THE DE TAILS OF ALL THESE EXPENSES WERE SUBMITTED TO THE ASSESSING OFFICER. I T WAS EXPLAINED THAT THE APPELLANT COMPANY IS GREATLY BENEFITED BEC AUSE OF THESE PROGRAMMES AND THEREFORE, IT IS AN EXPENDITURE INCU RRED IN THE COURSE OF CARRYING ON THE BUSINESS BY THE APPELLANT COMPAN Y. HOWEVER, THE ASSESSING OFFICER CITING THE EXPLANATION TO SECTION 37(1), BROUGHT INTO THE STATUTE BOOK WITH EFFECT FROM 01-04-2015, HAS D ISALLOWED THE WHOLE OF THE EXPENDITURE OF RS.1,91,70,559/- 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R AND FACTS OF THE CASE. FROM THE ASSESSMENT ORDER, IT WAS OBSERVED TH AT THE ASSESSING OFFICER HAS NOT ALLOWED THE CSR EXPENDITURE BY APPL YING THE PROVISIONS OF SECTION 37(2) OF THE I.T.ACT, WHICH I S NOT CORRECT, SINCE NOT ITA NO. 1468/HYD/2018 :- 4 -: APPLICABLE FOR THIS ASSESSMENT YEAR. IN THIS REGARD , DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPELLANT COMPANY SUBMIT TED THE EVIDENCES TO JUSTIFY THAT THE EXPENDITURE INCURRED UNDER THE HEAD CSR IS ELIGIBLE FOR DEDUCTION. SINCE THESE ARE NOT VERI FIED BY THE ASSESSING OFFICER, THE SAME ARE BEING FORWARDED TO THE ASSESS ING OFFICER FOR HIS VERIFICATION AND AFTER VERIFICATION, THE ASSESSING OFFICER IS DIRECTED TO ALLOW ACCORDINGLY. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 5. SUFFICE TO SAY, IT IS COME ON RECORD THAT THE FOREGOI NG STATUTORY EXPLANATIONS CARRIES PROSPECTIVE EFFECT FROM 0 1-04- 2015, WHEREAS WE ARE IN AY.2014-15. LEARNED DEPARTMENTAL REPRESENTATIVE AT THIS STAGE FILED A LIST OF ASSESSEES CORRESPONDING CSR EXPENDITURE SUM MARY INVOLVING 18 ITEMS; TOTALLING TO RS.1,91,70,559/- THAT THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE THAN REVENUE AND THEREFORE LIABLE TO BE DECLINED. WE FIND NO SUBSTANCE IN THE REVENUES LATTER SUBSTANTIVE GRIEVANCE AS WELL. THIS TRI BUNALS SPECIAL BENCH DECISION IN MAHINDRA AND MAHINDRA LTD. , VS. DCIT (2010) 122 ITD 216 (MUM) HOLDS THAT THE REVENUE COULD NOT BE ALLOWED TO IMPROVE ITS CASE OTHER THAN THOSE FINDINGS RECORDED IN THE ASSESSMENT ORDER . COUPLED WITH THIS, WE FAIL TO UNDERSTAND AS TO IN WHAT MANNER ANY OF THE SAID ITEMS CO ULD BE HELD AS IN FALLING UNDER THE CAPITAL HEAD. WE THUS REJECT THE REVENUES INSTANT SECOND SUBSTANTIVE GRIEVANCE AS WELL . 6. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH AUGUST, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 17-08-2021 TNMM ITA NO. 1468/HYD/2018 :- 5 -: COPY TO : 1.DY.COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD. 2.M/S.MISHRA DHATU NIGAM LIMITED, P.O.KANCHANBAGH, HYDERABAD. 3.CIT(APPEALS)-4, HYDERABAD. 4.PR.CIT-4, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.